Bitcoin Trading Alert: Bitcoin Trading Flat but Not Flatlined for Good

To the point: we don't support having any short-term positions in the
market now.

We wrote yesterday that Bitcoin's future holds promise and that the system
has the potential to revolutionize payments. In an article from
its print edition, the Economist also comes to the conclusion that the characteristics
of Bitcoin may as well outweigh the recent disastrous shutdown of Mt. Gox over
the long term. What is more, the applications of Bitcoin or its underlying
general ledger (blockchain) system might not be restricted to money transfers:

Such "permissionless innovation", in the jargon, should in time result
in a cornucopia of applications. Bitcoin's technology could be used to
transfer ownership both in other currencies and of any kind of financial
asset. This, in turn, would allow the creation of decentralised exchanges
which let asset holders trade directly. And money could be "programmed" to
come with conditions: for instance, it might be released only if a third
person agrees.

Some want ownership of devices--a car, say--to be represented by a Bitcoin,
or a tiny fraction of it. The car would work only when turned on with a
key that includes the Bitcoin token. This would make managing ownership
of and access to physical assets much easier: the token could be sold or
rented out temporarily, enabling flexible peer-to-peer car-rental schemes.
Such "smart property" would turn the blockchain into a global registry
of ownership in physical assets.

We don't anticipate seeing such solutions in the nearest future but these
possible applications of the blockchain system show that there might be even
more to Bitcoin than we expect.

Yesterday, Bitcoin appreciated 1.0% on BitStamp on low volume. In spite of
this move up, there was no change in outlook as the currency remained between
$600 (dashed red line on the chart) and $700 (solid green line).

Today, there have been no important changes so far (this is written just before
11:30 a.m. EDT). Bitcoin is at $637, 0.6% down from yesterday's close. The
final volume today might be higher than yesterday but at this point it seems
like yesterday's move up is being cancelled out. No direct bullish or bearish short-term conclusions
here.

The same can be said about BTC-e. Bitcoin jittered 0.2% up yesterday but today
it has lost 0.4% from its last close. If there was a divergence in prices yesterday,
today we haven't seen one. Instead both exchanges seem to confirm the stagnation.

If anything, the volume on BTC-e today might end up being even lower than
yesterday. This would mean extremely weak. Even if it comes in as comparable
with yesterday's levels, it still will be weak. This means that the move today
hasn't gained any weight to change to the short-term trend (which is flat).

Currently, Bitcoin is closer to $600 than $700 on both exchanges. The action
we've seen recently doesn't add significant bullish or bearish cues to the
picture. One potentially comforting fact is that the decline fueled by speculation
about Mt. Gox seems to be over. We still think that Bitcoin has the potential
to go back to $800 but we're not betting on the move happening in the nearest
future.

Summing up, in our opinion no short-term positions should be kept in
the Bitcoin market at this time.

Mike is a quantitative analyst focused on the economic reality, not theoretical
models. His investment thinking is grounded on empirical evidence and common
sense.

A holder of 2 master's degrees, in quantitative methods and finance, he researches
economic uncertainty, portfolio management, and investor behavior.

Mike joined Sunshine Profits in
2009. He develops innovative investment
tools, verifies usefulness of popular techniques, and provides thorough
internal research. His quantitative and financial background, along with experience
in the gold market and personal interest in bitcoin led to the launch of our Bitcoin
Trading Alert service.

Disclaimer: All essays, research and information found above represent
analyses and opinions of Mike McAra and Sunshine Profits' associates only.
As such, it may prove wrong and be a subject to change without notice. Opinions
and analyses were based on data available to authors of respective essays at
the time of writing. Although the information provided above is based on careful
research and sources that are believed to be accurate, Mike McAra and his associates
do not guarantee the accuracy or thoroughness of the data or information reported.
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